Transcript: Prime Minister John Key

Newshub Political Reporter Lloyd Burr was travelling with the Prime Minister and when he sat down with him in Xi'an, started by asking how worried he is about China's economy hitting a Great Wall...

John Key: We can see issues in the Chinese economy, particularly around some of the loans they've got, some of the regional banks and some of the lending overall, but we tend to be on the slightly more optimistic side. I mean, the Chinese leadership have been telling us they expect to grow at about 6.5 percent. They grew at 6.7 percent for the first quarter. And we certainly still continue to see, as I say, demand on the consumer side for what we're selling, so, look, let's wait and see, but in the best assessment we've got, it's still tracking along reasonably okay.

Lloyd Burr: That downturn must be worrying, especially since the high in 2014, and when President Xi came to visit in New Zealand, he said, I think his quote was, 'There's more Chinese demand than you can possibly supply,' but that sort of hasn't run true, has it?

Well, no, I think he's actually right if you think about the fact they've probably got about two or three hundred million middle-income consumers. They have 1.4 billion people, and the big challenge for the Chinese administration is to take that billion-plus people out of very low levels of income and put them into middle-income consumers. That will happen. The question is just how long it takes to happen.

One thing that sort of caught my attention, especially with the signings yesterday, is that Fonterra and the like of these big companies are doing joint ventures with Chinese companies. So if we're teaching Chinese farmers how to make milk just like we do, in an efficient way, isn't that bad for our economy? It means that the Chinese people can make their own milk.

No, I don't think so. Firstly, one of the big issues that always get raised with the Chinese leadership is that Chinese consumers don't trust their own products. So as much as they're improving and getting better, the Chinese consumers have a very long memory when it comes to things like the melamine crisis that was here and other issues that they've got in their food chain. So there probably isn't a week that goes by when there isn't a particular issue in one sector or another when it comes to food safety and security, some sort of scandal, some issue. So they put a very high premium on buying a New Zealand-sourced product. It's one of the reasons why you're seeing companies like Yili and Yashili actually moving operations to New Zealand, sourcing their milk from Fonterra and being able to have a New Zealand-branded product under their own label coming back into China. So I think there's two different markets. There's the sort of less affluent consumer. They're probably going to buy Chinese milk, and that may well be milk that New Zealand helps in terms of the production of. Then there's the middle-income base. They're always going to gravitate towards the New Zealand product or, indeed, an international product because of the safety, I think.

It's not just dairy that you're pushing here, isn't it? You put on your other hat, your tourism hat. China's a huge source of tourism for New Zealand, and you want to increase it. How many do you want? How many Chinese tourists do you want in New Zealand?

What we want fundamentally is the value play rather than the volume play. I think the numbers are going to dramatically grow, but I think they're going to grow because Chinese are travelling a lot more themselves.

Can you give us a number?

Well, there are a hundred million trips this year. The Chinese president said at a meeting I was at a year or so ago that they thought it would be 400 million within five years. If you just extrapolated the numbers, you've got to think that there's every chance a million Chinese visitors will come to New Zealand within the next five years. The question for us is whether we have the capacity to accommodate them, and that will require us to build more infrastructure, particularly around hotels.

And that's the tough bit now, isn't it? Because a few weeks ago on The Nation, you talked about how there were no places for our Chinese visitors to stay, and is there going to be something in the Budget, I guess, for this so-called infrastructural crisis?

There will be in terms of around freedom camping, so there's an infrastructure deficit for the backpacker end, where people are staying out there, not necessarily staying in a motel or holiday park, and that's a real issue for local councils. On the broader issue of people staying in hotels, Government's not intending to get involved in that, but we can actually make a difference in terms of actively encouraging that investment in New Zealand. We're doing that.

Let's quickly talk about Project Palace from the Trade and Enterprise New Zealand. They're encouraging joint ventures, aren't they, like the Hyatt that you turned the first sod of?

Yeah, the Fu Wah Group.

Yeah, how important is that? Is that something that you're actively encouraging Chinese investors to come and invest in infrastructure like that?

We are. There's a lot of, I think, misnomers about foreign investment. New Zealand has relied on foreign investment for a very long period of time. Without it, we have to accept we're going to grow as a country at a lower rate. I think what a lot of New Zealanders would say is they quite welcome foreign investment, but they want to see it creating jobs and more capacity for our economy, not just gobbling up farmland.

Can we quickly just talk about extraditions?

Yeah.

In your decision with President Xi Jingping, you talked about the number of fugitives – Chinese fugitives – around as many 60 in New Zealand. Are they dangerous?

No, I don't think they're dangerous. I think they're people that have come to New Zealand. They've gone all around the world, by the way, and the Chinese have put out a list, I think, of the top 100 names of which there are one or two, I think, that are in New Zealand. And they're people that the Chinese government would maintain have got their money through ill-gotten gains, so in some way doing something wrong with state-owned assets or whatever it might be. From New Zealand's point of view, we don't want to harbour people if that's true, if they've undertaken criminal activity to get their resources. So we're happy to look at extradition, and, in fact, we don't need an extradition treaty to do that. We can do that on an individual basis. They would have to meet the conditions that they've met with the Korean individual that we're looking to extradite, and that is they can't be subjected to the death penalty if they're sent back here. But I think what the Chinese government really is trying to do is send a message to its people that you can't just steal money from the Chinese authorities and the SOEs and then hide out in a country like New Zealand.

So that money that they've stolen from the Chinese government, have they invested it in New Zealand? Are they buying up property or investing in businesses and things like that? Because you must know if you've got the names of those fugitives.

Well, I think one of the points to make is that that's the allegation from the Chinese authorities. If they can put up an individual case about an individual person, then we can look at the merits of that argument. And if the merits of that argument can withstand the process they have to go through, and at the moment that's through the Minister of Justice and potentially the courts, then of course we're happy to look at extradition. So they are ultimately claims that are made. Whether they're right or not, the onus is really on the Chinese government to prove the validity of those claims.

An extradition deal – how far away would that be if that all does get moving?

It's years, not months, away, but it is something we are receptive to if we can fit within the conditions we think are realistic.